An Example of the Moral Hazard Problem in International Investment

question 215

Multiple Choice

An example of the moral hazard problem in international investment would be that

• A) those seeking funds for the riskiest projects are amongst those most actively seeking the funds.
• B) the recipients of the funds may use the funds for riskier projects than the approved project.
• C) government officials may demand higher than the usual amount of bribes.
• D) those seeking the funds are dishonest.

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Definitions:

Quantity of Money

The total amount of money available in an economy at a specific time, including currency, coins, and balances in bank accounts.

Rate of Growth

The percentage change in a variable, such as economic output, population, or investment, over a specified period, indicating how quickly it is increasing or decreasing.

Quantity of Money

The total amount of money available in an economy, including all physical money and digital balances, governed by the central bank's monetary policy.

Low Levels of Inflation

A situation characterized by a slow rise in the general level of prices for goods and services over a period, indicating a stable economic environment.